Inslee seeks tax rebate for low-income families

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Most of the headlines surrounding Gov. Jay Inslee’s recent budget rollout focused on his plan to raise more than $1.4 billion in new revenue through tax increases and charges on carbon pollution.

But a less-publicized piece of Inslee’s proposal would offer tax-rebate checks to more than 450,000 low-income Washington families.

Inslee wants to resurrect the “Working Families Tax Rebate” — a tax break approved by the Legislature in 2008 but never funded. The program would give rebates averaging $223 a year to families who qualify for the federal Earned Income Tax Credit (EITC).

Supporters argue it’s one way to lighten the burden of the state’s tax code on the poor. Washington’s tax code repeatedly has been ranked as the most regressive in the nation due to its reliance on a retail sales tax and no income tax.

At his budget news conference last month, Inslee said the rebate, combined with a proposed capital-gains tax on the wealthy, “will help make Washington’s tax system a little fairer to low- and middle-income residents.”

But the Democratic governor’s ideas are sure to face a chilly reception in the Republican-controlled state Senate — especially since Inslee wants to pay for the $108 million-a-year rebate program with new charges on carbon pollution.

State Sen. John Braun, R-Centralia, called Inslee’s rebate plan “an admission that the carbon tax, or cap-and-trade, is going to be unusually hard on working families.”

Braun, the Senate’s deputy majority leader, said rather than a new government- rebate program, “The best thing we can do for working families is to improve our job situation.”

Both the Republican-controlled state Senate and Democratic-controlled state House will lay out their own budget plans early this year. The Legislature convenes Jan. 12 to grapple with a budget shortfall and a state Supreme Court order demanding billions in additional spending on K-12 education.

State Rep. Reuven Carlyle, D-Seattle, chairman of the House Finance Committee, said it’s too early to say whether the rebate as envisioned by Inslee would be included in the House Democrats’ budget. But he said there is general agreement among Democrats on the principle behind the rebate. “There is no question that our system is totally upside down and backward,” he said.

Republicans opposed the rebate in 2008 when it was passed by big Democratic legislative majorities and signed into law by then-Gov. Chris Gregoire.

The Association of Washington Business also raised concerns at the time, arguing there are better ways to give low-income people tax breaks — such as sales-tax holidays or exemptions on children’s clothing — that wouldn’t require creation of an expensive new bureaucracy.

There would be administrative costs because the state would have to process applications for the tax rebate from thousands of taxpayers. The state Department of Revenue estimates the program would provide nearly $102 million in rebate payments during the 2015-17 budget cycle. Inslee’s budget requests more than $6 million on top of that to implement the program.

The proposed rebate would give families 10 percent of the amount they claim under the federal EITC — or up to about $600 a year for a family with three or more children.

Half the states in the U.S. have some state version of the EITC, according to the Internal Revenue Service. Unlike Washington, those states all have state income taxes that already require annual filings by taxpayers.

Supporters praised Inslee for linking the rebate to his climate agenda.

“When we’re thinking about the dual challenges of income inequality and global warming, this is a perfect tool to address the connection between the two,” said Remy Trupin, executive director of the liberal Washington State Budget & Policy Center, which helped develop the rebate plan.

Trupin’s group is urging lawmakers to fund the rebate and eventually raise the credit to 30 percent of the federal EITC.

But Braun predicated the state Senate will look elsewhere to help working families.

“I would suggest the Senate is focused more on a long-term sustainable budget and the jobs climate,” he said. “That would be much more valuable to families in the state of Washington.”